Wrestling with Issues and Ideas in politics, the law, education, and other stuff.

Wednesday, October 01, 2008

Propping Up Banks Will Not Rescue A Debauched Financial System

So says the headline at London's Daily Telegraph. In a column written by Jeff Randall,

But the hard-sell of President Bush and the US Treasury Secretary felt too much like the pressure patter of a door-to-door hawker. Their message was crude: “Trust us. You are in a terrible place. Only we can get you out of this mess. No need to check the details. Hurry now, or it will be too late. Here’s a pen. There’s the dotted line. Just sign.”

But with the President’s ratings so low, few would let him leave the House with anything more than small change. Congress asked, not unreasonably: “If you guys know so much about banking, how come we are in such trouble?”

Having spent most of the year telling America, contrary to mounting evidence, that the US economy was just dandy, Mr Bush’s credibility is threadbare. When making statements, he’s beginning to look as if he doesn’t even believe himself. As for Mr Paulson, his long association with the jackpot culture of Goldman Sachs is, in the eyes of many outsiders, a gilded millstone.

Predictably, the refuseniks have been pilloried as ill-informed nihilists. They have been lambasted for failing to understand the consequences of their actions. They are, according to the Big Bail-out Brigade, condemning the rest of us to be buried alive in the rubble of a disintegrating banking system.

Try a different take. Yes, the West’s financial infrastructure is in severe distress. Yes, more banks are going to crumble. Yes, there will be a recession. But allocating $700bn (it would almost certainly turn out to be more) to a clean-up programme for toxic assets, in effect socialising the poison of private greed, has no merit other than to delay the inevitable. No amount of federal cash can rewind the X-rated horror video.

I heard a quote by my Congressman, Roscoe Bartlett (R-MD), when commenting on teh bailout plan "it privatizes profits but socializes losses" which is exactly dead on. This bailout takes the risk out of any future risky behavior by banks because a precedent will have been set for the bailout and no one will learn the lesson about taking future risks.

About Me

A husband, a father, a lawyer, a HUGE soccer fan and a guy who is pursuing happiness and sometimes catch it. I care about politics, but not so much that I would consider running for office, I care about education because I don't think we are doing a very good job on behalf of our kids. What else? When in doubt, you can find me playing or watching soccer, listening to music or reading.